A PROJECT REPORT SUBMITTED IN PARTIAL

FULFILLMENT OF AWARD OF PGDBA DEGREE

Analysis of Indian
Cement Industry
& Financial
Performance of
ACC LTD
SUBMITTED BY
NAME::SALOCHANA PESWANI
Reg. No: 200713378
Course: PGDBA(FINANCE)
Batch:2007

SUBMITTED TO
SYMBIOSIS
CENTRE FOR DISTANCE
LEARNING(SCDL)

TABLE OF CONTENTS
Sr. No.
1)
2)
3)
4)

Contents
Preface
Certificate of Guide
Declaration
Executive Summary

Page No.
04
05
06
07
08

5)

Introduction To The Study

-

6)

7)

8)
9)

Objective Of The Study

Place of the study
Research Methodology and Scope Of Study

Limitation Of The Study

Overview of Indian CEMENT Industry

Industry analysis using Porters model
SWOT Analysis
Introduction- ACC
Brief History
Plants & Capacity
Vision & Mission
Achievements & Awards
Map of ACC
5 years performance physical and highlights
Introduction-Working Capital
Working Capital Management
Consequences of under and over assessment
of W.C
Types of W.C
Influencing factors

11
21
36
51
-

 Financing W.C

Inventory Management

Cash Management

Receivables Management

10)
11)

Analysis
Ratios Analysis (graphical presentation)and

65
75

12)
13)

findings
Suggestions
Bibliography

81
83

PREFACE
To start any business, First of all we need finance and the success of that business
entirely depends on the proper management of day-to-day finance and the management of

this short-term capital or finance of the business is called Working capital

Management.
Working Capital is the money used to pay for the everyday trading activities
carried out by the business - stationery needs, staff salaries and wages, rent, energy bills,
payments for supplies and so on.
I have tried to put my best effort to complete this task on the basis of skill that I have
achieved during the last one year study in the institute. I have tried to put my maximum
effort to get the accurate statistical data. However I would appreciate if any mistakes are
brought to me by the reader.

PROF.S.Y.SHAH
M.COM, LLB, PGDBA

CERTIFICATE OF GUIDE

SALOCHANA PESWANI

Name of the Student:

Name of the Project:
Reg No. :

Analysis of Indian Cement

Industry & Financial
Performance of ACC ltd
2007133378

course:

PGDBA(FINANCE)

BATCH:

2007

Signature of the Student:

I declare that the above particulars are true to
the best of my knowledge and willing to Supervisor
Miss SALOCHANA PESWANI PGDBA Student.
Rules and regulations of the institution for the
concerned programme will be strictly abided.
Signature of the Supervisor

ADDRESS: B/3 HIMANI, LAD SOC. ROAD, VASTRAPUR,

AHMEDABAD
EMAIL:shilpan1971@gmail.com

DECLARATION

This to declare that I have carried out this project work

myself in part fulfillment of the PGDBA (FINANACE) program of
SCDL.
The work is original, has not been copied from anywhere else
and has not been submitted to other University/institute for an
award of any degree/diploma.

Date : 12th Sept, 2011

Place: AHMEDABAD

Signature
(SALOCHANA PESWANI)

EXECUTIVE SUMMERY
The major objective of the study is to understand the working capital of ACC & to
suggest measures to overcome the shortfalls if any.

Funds needed for short term needs for the purpose like raw materials, payment of wages
and other day to day expenses are known as working capital. Decisions relating to
working capital (Current assets-Current liabilities) and short term financing are known as
working capital management. It involves the relationship between a firms short-term
assets and its short term liabilities. By definition, working capital management entails
short-term definitions, generally relating to the next one year period.
The goal of working capital management is to ensure that the firm is able to continue its
operation and that it has sufficient cash flow to satisfy both maturing short term debt and
upcoming operational expenses.
Working capital is primarily concerned with inventories management, Receivable
management, cash management & Payable management.
Inventories management at ACC:
ACC is a large scale manufacturing company involved in production of Cement.
Therefore, it has to maintain large quantity of inventories at production units for its
smooth running and functioning.
Cash management at ACC:
ACC has been accumulating huge cash surpluses over last several years, which enables
the organization to maintain adequate cash reserves and to generate required amount of
cash.
Receivables management at ACC:
ACC has set up its marketing office at all major cities in India i.e Bangaluru , Bhopal,
Chandigarh , Coimbatore , Kanpur, Kolkata, Mumbai, Pune , Secunderabad New Delhi
& patna
This marketing office obtains sales order from Cement users in India as well as globally.
The cement production and dispatch figures for the month of May 2010 are 1.81 & 1.75
million tones respectively. The Sales recorded for the FY 2009 was Rs. 83,861,000,000

:INTRODUCTION:

Working Capital:The life blood of business, as is evident, signified funds required for day-to-day
operations of the firm. The management of working capital assumes great importance
because shortage of working capital funds is perhaps the biggest possible cause of failure
of many business units in recent times. There it is of great importance on the part of

management to pay particular attention to the planning and control for working capital.
An attempt has been made to make critical study of the various dimensions of the
working capital management of ACC.
Decisions relating to working capital and short term financing are referred to as working
capital management. These involve managing the relationship between a firm's shortterm assets and its short-term liabilities. The goal of Working capital management is to
ensure that the firm is able to continue its operations and that it has sufficient money flow
to satisfy both maturing short-term debt and upcoming operational expenses.

Objective of the study:The following are the main objective which has been undertaken in the present study:

To determine the amount of working capital requirement and to calculate various

ratios relating to working capital.

To analyze the Indian Cement Industry.

To evaluate the financial performance of ACC limited using financial tools.
To suggest the steps to be taken to increase the efficiency in management of
working capital.

Study design and methodology:The secondary data were collected from the Annual Report of ACC & ACC website, etc.

Scope: The study has got a wide & fast scope. It tries to find out the players in the industry &
focuses on the upcoming trends. It also tries to show the financial performance of the
major player of the industry i.e.; ACC Ltd.

Limitations:There may be limitations to this study because the study duration (summer placement) is
very short and its not possible to observe every aspect of working capital management
practices. The data collected were mostly secondary in nature.

10

INDUSTRY OVERVIEW

The cement industry is one of the vital industries for economic development in a
country. The total utilization of cement in a year is used as an indicator of economic
growth.
Cement is a necessary constituent of infrastructure development and a key raw
material for the construction industry, especially in the governments infrastructure
development plans in the context of the nations socioEconomic development.

11

India is the world's second largest producer of cement with total capacity of
251.02 million tones (MT) at the end of FY 2011, according to the Cement Manufactures
Association.
According to the Cement Manufacturers Association, cement dispatches during
2009-10 were 159.43 million tones (MT) increasing by 12 per cent over 142.23 in 200809. Cement production during 2009-10 was 160.31 MT an increase of 12.37 per cent over
142.65 MT in 2008-09.
Moreover, the governments continued thrust on infrastructure will help the key
building material to maintain an annual growth of 9-10 per cent in 2010, according to
Indias largest cement company, ACC.
In January 2010, rating agency Fitch predicted that the country will add about 50
million tone cement capacity in 2011, taking the total to around 300 million tones.

Government Initiatives
Government initiatives in the infrastructure sector, coupled with the housing
sector boom and urban development, continue being the main drivers of growth
for the Indian cement industry.

Increased infrastructure spending has been a key focus area. In the Union Budget
2010-11, US$ 37.4 billion has been provided for infrastructure development.

The government has also increased budgetary allocation for roads by 13 per cent
to US$ 4.3 billion.

Future Trends: The cement industry is expected to grow steadily in 2009-2010 and increase
capacity by another 50 million tons in spite of the recession and decrease in
demand from the housing sector.
12

 The industry experts project the sector to grow by 9 to 10% for the current
financial year provided India's GDP grows at 7%.

India ranks second in cement production after China.

The major Indian cement companies are

ASSOCIATED CEMENT COMPANY LTD (ACC),

GRASIM INDUSTRIES LTD,

AMBUJA CEMENTS LTD,

J.K CEMENT LTD AND

MADRAS CEMENT LTD.

The major players have all made investments to increase the production capacity
in the past few months, heralding a positive outlook for the industry.

The housing sector accounts for 50% of the demand for cement and this trend is
expected to continue in the near future.

PORTERS FIVE FORCE MODEL:It is useful for analyzing the industry overall and determining the level of
competition among different existing players .It can be understood under different
topics .Along with the industry we will try to point out the conditions for ACC too.

13

1. THREAT OF NEW ENTRANTS:ACC has threat from new entrants like TATA; Reliance etc can enter into this
industry. But there are certain barriers to their entry. These are:-

Availability of raw material

Restrictions on entry by government into cement industry
Cement industry requires a huge investment
Switching costs are high in cement industry

2. BARGAINING POWER OF SUPPLIERS:Suppliers have very much impact on cement industry because of the following
reasons:

Raw materials used in cement are gypsum, fly ash and slag. There are few
suppliers of these materials.

Quality of finished goods i.e. cement is very important for ACC ltd.

As already said, there are high switching costs in cement industry.

There is no substitute to the raw material used in cement.

3. BARGAINING POWER OF BUYER:ACC ltd plays the role of buyer. It has following bargaining powers:

14

There are only few buyers of raw material of cement.

ACC has major stake in cement industry i.e. 11% of the world.

4. THREAT OF SUBSTITUTES:It has threat from its competitors like Ambuja cements, Birla cements,
Binani cements ,Grasim etc.

5. RIVALRY AMONG THE COMPETING FIRMS IN INDUSTRY:

In spite of huge stake in cement industry, it is difficult to be on the top because
of the other competing companies i.e. Ambuja, Birla, and Binani etc. The competitors
are using different promotional strategies to attract buyers. So, all the leading players
in the industry have to analyze the situation frequently & they have to keep changing
them too.

SWOT ANALYSIS
STRENGTHS: The industry is likely to maintain its growth momentum and continue growing at
about

9 10% in the foreseeable future.

Government initiative in the infrastructure sector such as the commencement of the

second phase of the National Highway Development project, freight carriers, rural
roads and development of the housing sector (Bharat Nirman Yojana) are likely to
be the main drivers of growth.

In the coming few years the demand for the cement will increase which will be
booming news for cement manufactures. As capacity utilization is over 90% now.

Huge potential for export.

Weakness: Cement Industry is highly fragmented & regionalized.

Low value commodity makes transportation over long distances uneconomical.

High capital cost and investment cost for each and every project.

15

 The complex Excise Duty structure based on the category of buyer and end use
of the cement has caused at lot of confusion in the industry.

The recent ban on export of cement clinker would increase the availability of
cement in the domestic market, which in turn would put pressure on cement
prices.

Opportunities: Demandsupply gap

Substantially low per capita cement consumption as compared to developing
countries (1/3 rd of world average) Per capita cement consumption in India is
82 kgs against a global average of 255 kgs and Asian average of 200 kgs.

Despite slightly lower economic growth, the construction and infrastructure

sector is expected to record healthy growth, which augurs well for cement
industry.

Additional capacity of 20 million tons per annum will be required to match the
demand.

16

Threats: The recent moves by the Central Government in making the import of the
cement total duty free, is a cause of worry for the Indian cement industry.

Further recent changes in the Central Excise Duty structure by way of

introduction of multiple slabs of Excise Duty is also a cause of worry for the
industry.

Almost all the major players in the industry have announced substantial
increase in the capacity and the possibility of over supply situation cannot be
ruled out.

Increased railway freight, coal prices and dispatch bottlenecks on account of

truck Loading restrictions imposed by various State Governments

Scarcity of good quality Coal is some other factors which are cause of concern
for the industry.

COMPETITOR ANALYSIS (OVERALL INDUSTRY):ACC, with an installed capacity of 22.63 MTPA, enjoys an 11% market share in India,
which with its total installed capacity of 207 MTPA, India is the second largest cement
producing country in the world. ACCs nation-wide presence and brand image ensures a
competitive edge and helps it to withstand regional fluctuations in prices and also to
adapt its distribution to market place needs. Its key competitors are as follows:-

17

ACC Ltd is the market leader with the capacity of 22.63 MTPA
.
The top ten companies are given below with the details:Name

ACC Limited

Production

17,902

Installed Capacity

18,640

Net Profit (Quarter ended Sep 30,

2009)
Name

41,550.89 lakhs
Gujarat Ambuja Cements
Limited

Production

15,094

Installed Capacity

14,860

Net Profit (Quarter ended on Sep 30,

2009)

31,848 lakhs

Name

Ultratech

Production

13,707

Installed Capacity

17,000

Net Profit (in 2008-09)

97,700 lakhs

Name

Grasim

Production

14,649

Installed Capacity

14,115

Net Profit (in 2008-09)

1,64,800 lakhs

Name

India Cements

Production

8,434

Installed Capacity

8,810

18

Net Profit (in 2008-09)

43,218 lakhs

Name

JK Cement Ltd

Production

6,174

Installed Capacity

6,680

Net Profit (in 2008-09)

14,234.40 lakhs

Name

Jaypee Group

Production

6,316

Installed Capacity

6,531

Name

Century Cement

Production

6,636

Installed Capacity

6,300

Name

Madras Cement

Production

4,550

Installed Capacity

5,457

Net Profit (in 2008-09)

49,081 lakhs

Name

Birla Corp.

Production

5,150

Installed Capacity

5,113

Net Profit (in 2008-09)

9,061 lakhs

19

20

INTRODUCTION
OF THE
COMPANY

ACC (ACC Limited) is India's foremost manufacturer of cement and concrete.

ACC's operations are spread throughout the country with 14 modern cement factories, 19
Ready mix concrete plants, 19 sales offices, and several zonal offices. It has a workforce
21

of about 9000 persons and a countrywide distribution network of over 9,000 dealers.
ACC's research and development facility has a unique track record of innovative
research, product development and specialized consultancy services. Since its inception
in 1936, the company has been a trendsetter and important benchmark for the cement
industry in respect of its production, marketing and personnel management processes. Its
commitment to environment-friendliness, its high ethical standards in business dealings
and its on-going efforts in community welfare programs have won it acclaim as a
responsible corporate citizen. In the 70 years of its existence, ACC has been a pioneer in
the manufacture of cement and concrete and a trendsetter in many areas of cement and
concrete technology including improvements in raw material utilization, process
improvement, energy conservation and development of high performance concretes.
ACCs brand name is synonymous with cement and enjoys a high level of equity
in the Indian market. It is the only cement company that figures in the list of Consumer
Super Brands of India.
The company's various businesses are supported by a powerful, in-house research
and technology backup facility - the only one of its kind in the Indian cement industry.
This ensures not just consistency in product quality but also continuous improvements in
products, processes, and application areas.
ACC has rich experience in mining, being the largest user of limestone, and it is
also one of the principal users of coal. As the largest cement producer in India, it is one of
the biggest customers of the Indian Railways, and the foremost user of the road transport
network services for inward and outward movement of materials and products.
ACC has also extended its services overseas to the Middle East, Africa, and South
America, where it has provided technical and managerial consultancy to a variety of
consumers, and also helps in the operation and maintenance of cement plants abroad.
ACC is among the first companies in India to include commitment to
environmental protection as one of its corporate objectives, long before pollution control
laws came into existence. The company installed pollution control equipment and high
22

efficiency sophisticated electrostatic precipitators for cement kilns, raw mills, coal mills,
power plants and coolers as far back as 1966. Every factory has state-of-the art pollution
control equipment and devices.

HISTORY & PROFILE OF ACC CEMENT WORKS

ACC was formed in 1936 when ten existing cement companies came together under one
umbrella in a historic merger the countrys first notable merger at a time when the term
mergers and acquisitions was not even coined. The history of ACC spans a wide canvas
beginning with the lonely struggle of its pioneer F E Din Shaw and other Indian
entrepreneurs like him who founded the Indian cement industry. Their efforts to face
competition for survival in a small but aggressive market mingled with the stirring of a
countrys nationalist pride that touched all walks of life including trade, commerce and
business.
The first success came in a move towards cooperation in the countrys young cement
industry and culminated in the historic merger of ten companies to form a cement giant.
These companies belonged to four prominent business groups Tatas, Khataus, Killick
Nixon and F E Din Shaw groups. ACC was formally established on August 1, 1936.
Sadly, F E Din Shaw, the man recognized as the founder of ACC, died in January 1936.
Just months before his dream could be realized.
The ACC Board comprises of 13 persons. These include executive, non-executive, and
nominee directors. This group is responsible for determining the objectives and broad
policies of the Company - consistent with the primary objective of enhancing long-term
shareholder value.
The Board meets once a month. Two other small groups of directors - comprising
Shareholders'/Investors' Grievance Committee and Audit Committee of the Board of
Directors - also meet once a month on matters pertaining to the finance and share
disciplines. During the last decade, there has been a streamlining of the senior
management structure that is more responsive to the needs of the Company's prime

23

business. A Managing Committee - comprising, in addition to the Managing Director and

the two executive directors, the presidents representing multifarious disciplines: finance,
production, marketing, research and consultancy, engineering and human resources
meets once a week.

A STRATEGIC ALLIANCE:
The house of Tata was intimately associated with the heritage and history of ACC, right
from its formation in 1936 up to 2000. The Tata group sold all 14.45% of its
shareholdings in ACC in three stages to subsidiary companies of Gujarat Ambuja
Cements Ltd. (GACL), who are now the largest single shareholder in ACC.
This enabled ACC to enter into a strategic alliance with GACL; a company reputed for its
brand image and cost leadership in the cement industry.

HOLCIM A NEW PARTNERSHIP:

A new association was formed between ACC and The Holcim group of Switzerland in
2005. In January 2005, Holcim announced its plans to enter into long term alliances
with Ambuja Group by acquiring a majority stake in Ambuja Cements India Ltd. (ACIL),
which at the time held 13.8% of total equity shares in ACC. Holcim simultaneously
announced its bid to make an open offer to ACC shareholders, through Holdcem Cement
Pvt. Ltd. and ACIL, to acquire a majority shareholding in ACC. An open offer was made
by Holdcem Cement Pvt. Ltd. along with ACIL, following which the shareholding of
ACIL increased to 34.69% of Equity share capital of ACC. Consequently, ACIL has filed
declarations indicating their shareholding and declaring itself as a promoter of ACC.
Holcim is the world leader in cement as well as being large supplier of concrete,
aggregates and certain construction related services. Holcim is also a respected name in
information technology and research and development. The group has its headquarters in
Switzerland with worldwide operations spread across more than 70 countries.

PLANTS & THEIR CAPACITY:

24

S.
No.
1
2
3
4
5
6
7
8
9
10
11

Units
BARGARH
CHAIBASA
CHANDA
DAMODHAR
GAGAL
JAMUL
KYMORE
LAKHERI
MADUKKARAI
SINDRI
WADI

State
BARGARH CEMENT WORKS
CHAIBASA CEMENT WORKS
CHANDA CEMENT WORKS
DAMODAR CEMENT WORKS
GAGAL CEMENT WORKS

Capacity
(MTPA)
0.96
0.87
1.00
0.53
4.40
(Gagal I and II)

JAMUL CEMENT WORKS

KYMORE CEMENT WORKS
LAKHERI CEMENT WORKS
MADUKKARAI CEMENT WORKS
SINDRI CEMENT WORKS
WADI CEMENT WORKS

1.58
2.20
1.50
0.96
0.91
2.59

To be one of the most

respected companies in India;
recognized for
challenging
Vision:
conventions and delivering on
our promises
12

25

NEW WADI PLANT

WADI CEMENT WORKS

2.60

To be one of the most

respected companies in India;
recognized for challenging
conventions and delivering
on our promises

26

Leadership

Maintain our leadership of the Indian cement industry through

the continuous modernization and expansion of our
manufacturing facilities and activities, and through the

Profitability

establishment of a wide and efficient marketing network.

Achieve a fair and reasonable return on capital by promoting
productivity throughout the company.
Ensure a steady growth of business by strengthening our

Growth

position in the cement sector.

Maintain the high quality of our products and services and

Quality

ensure their supply at fair prices.

Promote and maintain fair industrial relations and an

Equity

environment for the effective involvement, welfare and

development of staff at all levels.
Promote research and development efforts in the areas of

Pioneering

product development and energy, and fuel conservation, and to

Responsibility

innovate and optimize productivity.

Fulfill our obligations to society, specifically in the areas of
integrated rural development and in safeguarding the
environment and natural ecological balance.

Achievements
1936

Incorporation of The Associated Cement Companies Limited on August 1,

1936.

1936

First Board Meeting of The Associated Cement Companies Limited held at

Esplanade House, Mumbai on November 10, 1936.

27

1937

With the transfer of the 10th company to ACC, viz. Dewarkhand Cement
Company, the formation of ACC is complete on October 23, 1937.

1944

ACCs first community development venture near Bombay

1947

Indias first entirely indigenous cement plant established at Chaibasa in Bihar

1952

Village Welfare Scheme launched

1955

Sindri cement works used the waste product calcium carbonate sludge from
fertilizer factory at Sindri.

1956

Bulk Cement Depot established at Okhla, Delhi

1957

Technical training institute established at Kymore, Madhya Pradesh.

1957

Katni Refractories

1961

Blast furnace slag from TISCO used at the Chaibasa Unit to manufacture
Portland Slag Cement for the first time in India.

1961

Manufacture of Accocid Cement, which resists the corrosive action of acids

and chemicals.

1961

Oilwell Cement manufactured at ACC Shahabad Cement Works in Karnataka

for cementation of oilwells upto a depth of 6,000 feet.

1961

Manufacture of Hydrophobic (waterproof) cement at ACC Khalari Cement

Works in Bihar.

1962

Manufacture of Accoproof, a waterproofing additive.

1965

ACCs Central Research Station (CRS) established at Thane

1965

Manufacture of Portland Pozzolana Cement.

1965

Manufacture of Calundum, a High Alumina Binder; Firecrete, Low Density

Alumina Castables and High Alumina Refractory Cement.

28

1968

Advent of computers in ACC for data processing and designing management

information and control systems.

1968

ACC supplied and commissioned one-million-tonne iron ore pelletising plant

ordered by TISCO

1971

Manufacture of Whytheat Castables A, K, C and Cal-Al-75

1973

Take-over of The Cement Marketing Company of India (CMI)

1977

ACC receives ASSOCHAM first national award for the year 1976 instituted
for outstanding performance in promoting rural and agricultural development
activities.

1978

Introduction of the energy efficient precalcinator technology for the first time
in India. Full scale commercial production based on MFC technology at Wadi
in 1979.

1979

ACC wins international contract for operation and management of a new one
million tonne cement plant at Yanbu-Ras Biridi in Saudi Arabia.

1982

Commissioning of the first 1 MTPA plant in the country at Wadi, Karnataka.

1984

ACC achieves a breakthrough in import substitution by developing and

supplying a special G type of oil well cement to ONGC.

1987

ACC develops a new binder for use at sub-zero temperatures, which is

successfully used in the Indian expedition to Antarctica.

1992

Incorporation of Bulk Cement Corporation of India, a joint venture with the

Government of India.

1993

ACC starts the commercial manufacture of Ready Mixed Concrete at

Mumbai.

1995

ACC selected as Most Respected Company in India by Business India.

1998

Commissioning of the 0.6 MTPA cement grinding unit at Tikaria, Uttar

Pradesh.

29

1999

Commissioning of captive power plants at the Jamul and Kymore plants in

Madhya Pradesh.

1999

Tata group sells 7.2% of its stake in ACC to Ambuja Cement Holdings Ltd, a
subsidiary of Gujarat Ambuja Cements Ltd. (GACL)

2000

Tata Group sells their remaining stake in ACC to the GACL group, who with
14.45% now emerge as the single largest shareholder of ACC.

2001

Commissioning of the new plant of 2.6 MTPA capacity at Wadi, Karnataka

plant, the largest in the country, and among the largest sized kilns in the
world.

2002

ACC wins PHDCCI Good Corporate Citizen Award

2003

IDCOL Cement Ltd becomes a subsidiary of ACC

2004

IDCOL Cement Limited is renamed as Bargarh Cement Limited (BCL).

2004

ACC raises US $ 100 million abroad through Foreign Currency Convertible

Bonds (FCCBs) for US$ 60 million and Global Depository Shares (GDSs)
for US $ 40 million. Both offerings are listed on the London Stock Exchange.

2004

ACC named as a Consumer Superbrand by the Superbrands Council of India,

becoming the only cement company to get this status.

2004

GreenTech Safety Gold and Silver Awards awarded to Madukkarai Cement

Works and Katni Refractory Works by Greentech Foundation for outstanding
performance in Safety Management System.

2005

ACC receives the CFBP Jamnalal Bajaj Uchit Vyavahar Puraskar Certificate
of Merit 2004 from Council For Fair Business Practices.

2005

Holcim group of Switzerland enters strategic alliance with Ambuja Group by

acquiring a majority stake in Ambuja Cements India Ltd. (ACIL) which at the
time held 13.8 % of the total equity shares in ACC. Holcim simultaneously
makes an open offer to ACC shareholders, through Holdcem Cement Pvt.
Limited and ACIL, to acquire a majority shareholding in ACC. Pursuant to
the open offer, ACILs shareholding in ACC increases to 34.69 % of the
Equity share capital of ACC.

30

2005

Commissioning of Modernisation and Expansion project at Chaibasa in

Jharkhand, replacing old wet process technology with a new 1.2 MTPA
clinkering unit, together with a captive power plant of 15 MW.

2005

Financial accounting year of the company changed to calendar year JanuaryDecember

2006

Subsidiary companies Damodhar Cement & Slag Limited, Bargarh Cement

Limited and Tarmac (India) Limited merged with ACC

2006

ACC announces new Workplace policy for HIV/AIDS

2006

Change of name to ACC Limited with effect from September 1, 2006 from
The Associated Cement Companies Limited.

2006

ACC receives Good Corporate Citizen Award 2005-06 from Bombay

Chamber of Commerce and Industry

2006

New corporate brand identity and logo adopted from October 15, 2006

2006

ACC establishes Anti Retroviral Treatment Centre for HIV/AIDS patients at

Wadi in Karnataka the first ever such project by a private sector company in
India.

2007

ACC partners with Christian Medical College for treatment of HIV/AIDS in

Tamil Nadu

2007

Sumant Moolgaokar Technical Institute completes 50 years and reopens with

new curriculum

2008

Ready mixed concrete business hived off to a new subsidiary called ACC
Concrete Limited.

2008

ACC Cement Technology Institute formally inaugurated at Jamul on July 7.

2008

First Sustainable Development Report released on June 5.

2008

ACC wins CNBC-TV18 India Business Leader Award in the category India
Corporate Citizen of the year 2008

31

2008

Project Orchid launched to transform our Corporate Office, Cement House

into a green building.

2009

ACC received the Jamanalal Bajaj "Uchit Vyavahar Puraskar" of Council for
Fair Business Practices

2009

ACC is allotted coal blocks in Madhya Pradesh and West Bengal.

2009

ACC's new Grinding plant of capacity 1.60 million tonnes inaugurated at

Thondebhavi in Karnataka.

2010

Kudithini Cement Grinding Plant inaugurated in Karnataka on January 4,

2010 with a capacity of 1.1 MTPA of Portland Slag Cement.

2010

ACC acquires 100 percent of the financial equity of Encore Cements &
Additives Private Limited which is a slag grinding plant in Vishakhapatnam
in coastal Andhra Pradesh. This company became a wholly-owned subsidiary
of ACC in January 2010.

2010

ACC enters its platinum jubilee year - the first company in the cement
industry to achieve this status

2010

ACC receives FICCI Award for Outstanding Corporate Vision Triple Impact
Business Performance Social & Environmental Action & Globalisation for
2009-10 - a unique award received for the first time

2011

World's largest kiln installed at ACC Cement Plant, Wadi, Karnataka with a
capacity of 12,500 tonnes per day creating new landmarks for cement
industry

2011

Central Control Room Building at ACC Chanda Plant, Maharashtra set up as

a Green building, the first of its kind in an industrial environment

AWARDS & ACCOLADES

32

National Award for Excellence in Water Management by

Confederation of Indian Industry (CII)

Outstanding Corporate Vision, Triple Impact - Business

Performance Social & Environmental Action and Globalisation
for 2009-10 from Federation of Indian Chambers of Commerce and
Industry
Asia Pacific Entrepreneurship Award in two categories, Green
Leadership and Community Engagement by Enterprise Asia.
Indira Priyadarshini Vrikshamitra Award --- by The Ministry of
Environment and Forests for "extraordinary work" carried out in the
area of afforestation.
Subh Karan Sarawagi Environment Award - by The Federation of
Indian Mineral Industries for environment protection measures.
Drona Trophy - By Indian Bureau Of Mines for extra ordinary efforts
in protection of Environment and mineral conservation in the large
mechanized mines sector.
Indira Gandhi Memorial National Award - for excellent
performance in prevention of pollution and ecological development
Excellence in Management of Health, Safety and Environment :
Certificate of Merit by Indian Chemical Manufacturers Association
Good Corporate Citizen Award - by PHD Chamber of Commerce
and Industry
FIMI National Award - for valuable contribution in Mining activities
from the Federation of Indian Mineral Industry under the Ministry of
Coal.
Rajya Sthariya Paryavaran Puraskar - for outstanding work in
Environmental Protection and Environment Performance by the
Madhya Pradesh Pollution. Control Board.
National Award for Fly Ash Utilisation - by Ministry of Power,
Ministry of Environment & Forests and Dept of Science &
Technology, Govt of India - for manufacture of Portland Pozzolana
Cement.

Map of ACC Network

Corporate office:
Overseeing the companys rang of business; the Corporate Office is the central head
quarters of all business and human resource function located in Mumbai.

33

ACC Subsidiaries:
1. Bulk Cement Corporation India Ltd (BCCI)
2. ACC Machinery Company Ltd (AMCL)
3. ACC Nihon Casting Ltd (ANCL)
Regional marketing offices :Offices at all major cities in India i.e Bangaluru , Bhopal, Chandigarh , Coimbatore ,
Kanpur, Kolkata, Mumbai, Pune , Secunderabad ,New Delhi & Patna.
MAP OF ACC PLANTS:-

34

HIGHILIGHTS OF FINANCIAL PERFORMANCE of ACC LTD

Rs. Crore

Particulars

*2005

2006

2007

2008

2009

NET SALES

3,221

5,803

6,991

7,283

8,027

PBT

684

1,620

1,930

1,737

2,294

OPERATING

616

1,717

1,993

1,899

2,643

544

1,232

1,439

1,213

1,607

3,502

4,234

4,791

5,746

6,932

30.02

66.02

76.75

64.63

85.60

PROFIT

PAT

Capital
Employed

Basic Earnings
per Share (Rs.)

35

An Introduction To Working
Capital Management
Working capital means the part of the
total assets of the business that change
from one form to another form in the
ordinary course of business operations.

36

CONCEPT OF WORKING CAPITAL:The word working capital is made of two words 1.Working and 2. Capital
The word working means day to day operation of the business, whereas the word capital
means monetary value of all assets of the business.
Working capital may be regarded as the life blood of business. Working capital is of
major importance to internal and external analysis because of its close relationship with
the current day-to-day operations of a business. Every business needs funds for two
purposes.
Long term funds are required to create production facilities through purchase of fixed
assets such as plants, machineries, lands, buildings & etc
Short term funds are required for the purchase of raw materials, payment of wages, and
other day-to-day expenses.
It is other wise known as revolving or circulating capital
It is nothing but the difference between current assets and current liabilities. i.e.

Working Capital = Current Asset Current Liability.

Businesses use capital for construction, renovation, furniture, software, equipment, or
machinery. It is also commonly used to purchase inventory, or to make payroll. Capital is
also used often by businesses to put a down payment down on a piece of commercial real

37

estate. Working capital is essential for any business to succeed. It is becoming

increasingly important to have access to more working capital when we need it.

Concept of working capital

Gross Working Capital = Total of Current Asset

Net Working Capital = Excess of Current Asset over Current Liability.

Current Assets
Cash in hand / at bank

Current Liabilities
Bills Payable

Bills Receivable

Sundry Creditors

Sundry Debtors

Outstanding expenses

Short term loans

Accrued expenses

Investors/ stock

Temporary investment

Bank Over draft

Prepaid expenses

Accrued incomes

Working capital in terms of five components:

1. Cash and equivalents: - This most liquid form of working capital requires constant
supervision. A good cash budgeting and forecasting system provides answers to key
questions such as: Is the cash level adequate to meet current expenses as they come due?
What is the timing relationship between cash inflow and outflow? When will peak cash
needs occur? When and how much bank borrowing will be needed to meet any cash
shortfalls? When will repayment be expected and will the cash flow cover it?

38

2. Accounts receivable: - Many businesses extend credit to their customers. If we do, is

the amount of accounts receivable reasonable relative to sales? How rapidly are
receivables being collected? Which customers are slow to pay and what should be done
about

them?

3. Inventory: - Inventory is often as much as 50 percent of a firm's current assets, so

naturally it requires continual scrutiny. Is the inventory level reasonable compared with
sales and the nature of our business? What's the rate of inventory turnover compared with
other companies in our type of business?

4.Accounts payable: - Financing by suppliers is common in small business; it is one of

the major sources of funds for entrepreneurs. Is the amount of money owed
suppliers reasonable relative to what we purchase? What is our firm's
payment policy doing to enhance or detract from our credit rating?
5. Accrued expenses and taxes payable: - These are obligations of our
company at any given time and represent a future outflow of cash.

Two different concepts of working capital are:

Balance sheet or Traditional concept

Operating cycle concept.

Balance sheet or Traditional concept:- It shows the position of the firm at certain point of
time. It is calculated in the basis of balance sheet prepared at a specific date. In this method
there are two type of working capital:-

39

Gross working capital

Net working capital

Gross working capital:- It refers to the firms investment in current assets. The sum of the
current assets is the working capital of the business. The sum of the current assets is a
quantitative aspect of working capital. Which emphasizes more on quantity than its quality,
but it fails to reveal the true financial position of the firm because every increase in current
liabilities will decrease the gross working capital.
Net working capital:- It is the difference between current assets and current liabilities or the
excess of total current assets over total current liabilities.
Working capital= current assets - current liabilities.
Net working capital: - It is also can defined as that part of a firms current assets which is
financed with long term funds. It may be either positive or negative. When the current assets
exceed the current liability, the working capital is positive and vice versa.
Operating cycle concept: - The duration or time required to complete the sequence of
events right from purchase of raw material for cash to the realization of sales in cash is
called the operating cycle or working capital cycle.

40

CASH

RAW MATERIAL

OPERATING
CYCLE

DEBTORS & BILLS

RECEIVABLES

SALES

WORK IN
PROGRESS

FINISH GOODS

Types of Working Capital:-

41

TYPES OF
WORKING
CAPITAL

ON THE BASIS OF
B/S CONCEPT

GROSS WORKING
CAPITAL

NET WORKING
CAPITAL

ON THE BASIS OF
TIME

REGULAR
WORKING
CAPITAL

TEMPORARY
WORKING
CAPITAL

SEASONAL
WORKING
CAPITAL

SPECIFIC
WORKING
CAPITAL

SIGNIFICANCE OF WORKING CAPITAL:-

42

PAYMENT
TO
SUPPLIERS
EASY LOAN
FROM
BANKS

DIVIDEND
DISTRIBUTI
-ON
SIGNIFICAN
--CE OF
WORKING
CAPITAL

INCREASE
EFFECIENCY

INCREASE
DEBT
CAPACITY
INCREASE
IN FIX
ASSETS

43

Factors

requiring

consideration

while

estimating

working capital.

The average credit period expected to be allowed by

suppliers.

Total costs incurred on material, wages.

The length of time for which raw material are to remain in

stores before they are issued for production.

The length of the production cycle (or) work in process.

The length of sales cycle during which finished goods are to

be kept waiting for sales.

The average period of credit allowed to customers

The amount of cash required to make advance payment

Importance of Working Capital Ratios

Ratio analysis can be used by financial executives to check upon the
efficiency with which working capital is being used in the enterprise. The
following are the important ratios to measure the efficiency of working
capital. The following, easily calculated, ratios are important measures of
working capital utilization.

44

Key Working Capital Ratios

The following, easily calculated, ratios are important measures of working capital
utilization.

Ratio

Formulae

Result

Interpretation
On average, we turn over the value of our
entire stock every x days. We may need to

Stock
Turnover
(in days)

Average Stock *

break this down into product groups for

365/

=x

Cost of Goods

days

Sold

effective stock management.

Obsolete stock, slow moving lines will extend
overall stock turnover days. Faster production,
fewer product lines, just in time ordering will
reduce average days.
It takes on average x days to collect monies

Receivables
Ratio
(in days)

due to we. If were official credit terms are 45

Debtors * 365/

=x

Sales

days

day and it takes 65 days... why?

One or more large or slow debts can drag out
the average days. Effective debtor
management will minimize the days.
On average, we pay our suppliers every x
days. If we negotiate better credit terms this

Payables

Creditors * 365/

Ratio

Cost of Sales (or

(in days)

Purchases)

will increase. If we pay earlier, say, to get a

=x

discount this will decline. If we simply defer

days

paying our suppliers (without agreement) this

will also increase - but our reputation, the
quality of service and any flexibility provided

Current
Ratio

Total Current
Assets/
Total Current

45

=x

by our suppliers may suffer.

Current Assets are assets that we can readily

times turn in to cash or will do so within 12 months

in the course of business. Current Liabilities

are amount we are due to pay within the

coming 12 months. For example, 1.5 times
means that we should be able to lay our hands
on $1.50 for every $1.00 we owe. Less than 1

Liabilities

time e.g. 0.75 means that we could have

liquidity problems and be under pressure to
generate sufficient cash to meet oncoming
demands.

(Total Current
Assets Quick Ratio

Inventory)/
Total Current

Working
Capital

=x
times

Similar to the Current Ratio but takes account

of the fact that it may take time to convert
inventory into cash.

Liabilities
(Inventory +
Receivables -

Ratio

Payables)/

As % A high percentage means that working capital

Sales needs are high relative to our sales.

Sales

Note:- Once ratios have been established for our business, it is important to track them
over time and to compare them with ratios for other comparable businesses or industry
sectors.

The working capital needs of a business are influenced by

numerous factors. The important ones are discussed in brief as
given below:

46

 Nature of Enterprise:-The nature and the working capital requirements of an

enterprise are interlinked. While a manufacturing industry has a long cycle of
operation of the working capital, the same would be short in an enterprise
involved in providing services. The amount required also varies as per the nature;
an enterprise involved in production would require more working capital than a
service sector enterprise.

Manufacturing/Production Policy:-Each enterprise in the manufacturing sector

has its own production policy, some follow the policy of uniform production even
if the demand varies from time to time, and others may follow the principle of
'demand-based production' in which production is based on the demand during
that particular phase of time. Accordingly, the working capital requirements vary
for both of them.

Working Capital Cycle :-In manufacturing concern, working capital cycle starts
with the purchase of raw materials and ends with realization of cash from the sale
of finished goods. The cycle involves the purchase of raw materials and ends with
the realization of cash from the sale of finished products. The cycle involves
purchase of raw materials and stores, its conversion in to stock of finished goods
through work in progress with progressive increment of labor and service cost,
conversion of finished stick in to sales and receivables and ultimately realization
of cash and this cycle continuous again from cash to purchase of raw materials
and so on.

Operations:-The requirement of working capital fluctuates for seasonal business.

The working capital needs of such businesses may increase considerably during
the busy season and decrease during the slack season. Ice creams and cold drinks
have a great demand during summers, while in winters the sales are negligible.

47

 Market Condition:-If there is high competition in the chosen product category,

then one shall need to offer sops like credit, immediate delivery of goods etc. for
which the working capital requirement will be high. Otherwise, if there is no
competition or less competition in the market then the working capital
requirements will be low.

Credit Policy:-The credit policy is concerned in its dealings with debtors and
creditors influence considerably the requirements of the working capital. A
concern that purchases its requirements on credit and sells its products/services on
cash requires lesser amount of working capital. On the other hand a concern
buying its requirements for cash and allowing credit to its customers, shall need
larger amount of funds are bound to be tied up in debtors or bills receivables.

Business Cycle:-Business Cycle refers to alternate expansion and contraction in

general business activities. In a period of born i.e. when the business is prosperous
there is a need for larger amount of working capital due to increase in sales, rise in
prices, optimistic expansion of business etc. On the country at he time of
depression i.e. when there is a down swing of the cycle, business contracts, sales
decline, difficulties are faced in collections from debtors and firms may have a
large amount of working capital lying ideal

Availability of Raw Material:-If raw material is readily available then one need
not maintain a large stock of the same, thereby reducing the working capital
investment in raw material stock. On the other hand, if raw material is not readily
available then a large inventory/stock needs to be maintained, thereby calling for
substantial investment in the same.

Growth and Expansion:-Growth and expansion in the volume of business results

in enhancement of the working capital requirement. As business grows and

48

expands, it needs a larger amount of working capital. Normally, the need for
increased working capital funds precedes growth in business activities.

Earning Capacity and Dividend policy:-Some firms have more earning capacity
than others due to the quality of their products, monopoly conditions etc. Such
firms with high earning capacity may generate cash profits from operations and
contribute to their capital. The dividend policy of a concern also influences the
requirements of the working capital. A firm that maintains steady high rate of cash
dividend irrespective of its generation of profits needs more capital than the firm
retains larger part of its profits and does not pay high rate of cash dividend.

Price Level Changes:-Generally, rising price level requires a higher investment

in the working capital. With increasing prices, the same level of current assets
needs enhanced investment.

Manufacturing Cycle:-The manufacturing cycle starts with the purchase of raw

material and is completed with the production of finished goods. If the
manufacturing cycle involves a longer period, the need for working capital would
be more. At times, business needs to estimate the requirement of working capital
in advance for proper control and management. The factors discussed above
influence the quantum of working capital in the business. The assessment of
working capital requirement is made keeping these factors in view. Each
constituent of working capital retains its form for a certain period and that holding
period is determined by the factors discussed above. So for correct assessment of
the working capital requirement, the duration at various stages of the working
capital cycle is estimated. Thereafter, proper value is assigned to the respective
current assets, depending on its level of completion.

Other Factors:-Certain other factors such as operating efficiency, management

ability, irregularities a supply, import policy, asset structure, importance of labor,

49

banking facilities etc. also influences the requirement of working capital.

Component of Working Capital Basis of Valuation: Stock of raw material Purchase cost of raw materials
Stock of work in process At cost or market value, whichever is lower
Stock of finished goods Cost of production
Debtors Cost of sales or sales value
Cash Working expenses:-

50

WORKING
CAPITAL
MANAGEMENT

51

Working Capital Management refers to management of current assets and current

liabilities. The major thrust of course is on the management of current assets .This is
understandable because current liabilities arise in the context of current assets. Working
Capital Management is a significant fact of financial management. Its importance stems
from two reasons:

Investment

in

current

assets

represents

substantial

portion

of

total investment.

Investment in current assets and the level of current liabilities have to be

geared quickly to change in sales. To be sure, fixed asset investment and long
term financing are responsive to variation in sales. However, this relationship
is not as close and direct as it is in the case of working capital components.

The importance of working capital management is effected in the fact that financial
manages spend a great deal of time in managing current assets and current liabilities.
Arranging short term financing, negotiating favorable credit terms, controlling the
movement of cash, administering the accounts receivable, and monitoring the inventories
consume a great deal of time of financial managers.
The problem of working capital management is one of the best utilization of a scarce
resource.
Thus the job of efficient working capital management is a formidable one, since it
depends upon several variables such as character of the business, the lengths of the
merchandising cycle, rapidity of turnover, scale of operations, volume and terms of
purchase & sales and seasonal and other variations.

CONSEQUENCES OF UNDER ASSESSMENT OF WORKING

CAPITAL

52

 Growth may be stunted. It may become difficult for the enterprise to undertake
profitable projects due to non-availability of working capital.

Implementation of operating plans may become difficult and consequently the

profit goals may not be achieved.

Cash crisis may emerge due to paucity of working funds.

Optimum capacity utilization of fixed assets may not be achieved due to non
availability of the working capital.

The business may fail to honor its commitment in time, thereby adversely
affecting its credibility. This situation may lead to business closure.

The business may be compelled to buy raw materials on credit and sell finished
goods on cash. In the process it may end up with increasing cost of purchases and
reducing selling prices by offering discounts. Both these situations would affect
profitability adversely.

Non-availability of stocks due to non-availability of funds may result in

production stoppage.

CONSEQUENCES OF OVER ASSESSMENT OF WORKING

CAPITAL
Excess of working capital may result in unnecessary accumulation of inventories.
It may lead to offer too liberal credit terms to buyers and very poor recovery
system and cash management.

It may make management complacent leading to its inefficiency.

53

 Over-investment in working capital makes capital less productive and may reduce
return on investment. Working capital is very essential for success of a business
and, therefore, needs efficient management and control. Each of the components
of the working capital needs proper management to optimize profit.

Financing Working Capital

Working capital or current assets are those assets, which unlike fixed assets change their
forms rapidly. Due to this nature, they need to be financed through short-term funds.
Short-term funds are also called current liabilities. The following are the major sources of
raising short-term funds:
I. Suppliers Credit
At times, business gets raw material on credit from the suppliers. The cost of raw material
is paid after some time, i.e. upon completion of the credit period. Thus, without having an
outflow of cash the business is in a position to use raw material and continue the
activities. The credit given by the suppliers of raw materials is for a short period and is
considered current liabilities. These funds should be used for creating current assets like
stock of raw material, work in process, finished goods, etc.
ii. Bank Loan for Working Capital
This is a major source for raising short-term funds. Banks extend loans to businesses to
help them create necessary current assets so as to achieve the
Required business level. The loans are available for creating the following current Assets:

Stock of Raw Materials

Stock of Work in Process
Stock of Finished Goods
Debtors

54

Banks give short-term loans against these assets, keeping some security margin.
The advances given by banks against current assets are short-term in nature and banks
have the right to ask for immediate repayment if they consider doing so. Thus bank loans
for creation of current assets are also current liabilities.

iii. Promoters Fund

It is advisable to finance a portion of current assets from the promoters funds. They are
long-term funds and, therefore do not require immediate repayment. These funds increase
the liquidity of the business.

MANAGEMENT OF INVENTORY
Inventories constitute the most significant part of current assets of a large majority of
companies in India. On an average, inventories are approximately 60 % of current assets
in public limited companies in India.
Because of the large size of inventories maintained by firms maintained by firms, a
considerable amount of funds is required to be committed to them. It is, therefore very
necessary to manage inventories efficiently and effectively in order to avoid unnecessary
investments. A firm neglecting a firm the management of inventories will be jeopardizing
its long run profitability and may fail ultimately.
The purpose of inventory management is to ensure availability of materials in sufficient
quantity as and when required and also to minimize investment in inventories at
considerable degrees, without any adverse effect on production and sales, by using simple
inventory planning and control techniques.
Need to hold inventories:-

Transaction motive emphasizes the need to maintain inventories to facilitate

smooth production and sales operation.
55

 Precautionary motive necessities holding of inventories to guard against the risk

of unpredictable changes in demand and supply forces and other factors.

Speculative motive influences the decision to increases or reduce inventory

levels to take advantage of price fluctuations and also for saving in re-ordering
costs and quantity discounts etc.
Objective of Inventory Management:The main objectives of inventory management are operational and financial. The
operational mean that means that the materials and spares should be available in
sufficient quantity so that work is not disrupted for want of inventory. The financial
objective means that investments in inventories should not remain ideal and minimum
working capital should be locked in it. The following are the objectives of inventory
management:

To ensure continuous supply of materials, spares and finished goods.

To avoid both over-stocking of inventory.

To maintain investments in inventories at the optimum level as required by the

operational and sale activities.

To keep material cost under control so that they contribute in reducing cost of
production and overall purchases.

To eliminate duplication in ordering or replenishing stocks. This is possible with

the help of centralizing purchases.

To minimize losses through deterioration, pilferage, wastages and damages.

To design proper organization for inventory control so that management. Clear cut
account ability should be fixed at various levels of the organization.

To ensure perpetual inventory control so that materials shown in stock ledgers

should be actually lying in the stores.

To ensure right quality of goods at reasonable prices.

To facilitate furnishing of data for short-term and long term planning and control
of inventory

56

MANAGEMENT OF CASH
Cash is the important current asset for the operation of the business. Cash is the basic
input needed to keep the business running in the continuous basis, it is also the ultimate
output expected to be realized by selling or product manufactured by the firm.
The firm should keep sufficient cash neither more nor less. Cash shortage will disrupt the
firms manufacturing operations while excessive cash will simply remain ideal without
contributing anything towards the firms profitability. Thus a major function of the
financial manager is to maintain a sound cash position.
Cash is the money, which a firm can disburse immediately without any restriction. The
term cash includes coins, currency and cheques held by the firm and balances in its bank
account. Sometimes near cash items such as marketing securities or bank term deposits
are also included in cash. Generally when a firm has excess cash, it invests it is
marketable securities. This kind of investment contributes some profit to the firm.

MANAGEMENT OF RECEIVABLES
A sound managerial control requires proper management of liquid assets and inventory.
These assets are a part of working capital of the business. An efficient use of financial
resources is necessary to avoid financial distress. Receivables result from credit sales.
A concern is required to allow credit sales in order to expand its sales volume. It is not
always possible to sell goods on cash basis only. Sometimes other concern in that line
might have established a practice of selling goods on credit basis. Under these
circumstances, it is not possible to avoid credit sales without adversely affecting sales.
The increase in sales is also essential to increases profitability. After a certain level of
sales the increase in sales will not proportionately increase production costs. The increase
in sales will bring in more profits. Thus, receivables constitute a significant portion of
current assets of a firm. But for investment in receivables, a firm has to insure certain

57

costs. Further, there is a risk of bad debts also. It is therefore, very necessary to have a
proper control and management of receivables.
Needs to hold cash:
Receivables management is the process of making decisions relating to investment in
trade debtors. Certain investments in receivables are necessary to increase the sales and
the profits of a firm. But at the same time investment in this asset involves cost
consideration also. Further, there is always a risk of bad debts too.
Thus, the objective of receivable management is to take a sound decision as regards
investments in debtors. In the words of Bolton, S.E., the need of receivables management
is to promote sales and profits until that point is reached where the return of investment
in further funding of receivables is less than the cost of funds raised to finance that
additional credit.
WORKING CAPITAL CYCLE
Cash flows in a cycle into, around and out of a business. It is the business's life blood and
every manager's primary task is to help keep it flowing and to use the cash flow to
generate profits. If a business is operating profitably, then it should, in theory, generate
cash surpluses. If it doesn't generate surpluses, the business will eventually run out of
cash and expire. The faster a business expands the more cash it will need for working
capital and investment. The cheapest and best sources of cash exist as working capital
right within business. Good management of working capital will generate cash will help
improve profits and reduce risks. Bear in mind that the cost of providing credit to
customers and holding stocks can represent a substantial proportion of a firm's total
profits.
There are two elements in the business cycle that absorb cash - Inventory
(stocks and work-in-progress) and Receivables (debtors owing our money). The main
sources of cash are Payables (our creditors) and Equity and Loans.

58

Each component of working capital (namely inventory, receivables and payables) has two
dimensions ........TIME ......... and MONEY. When it comes to managing working capital

TIME IS MONEY. If we can get money to move faster around the cycle (e.g. collect
monies due from debtors more quickly) or reduce the amount of money tied up (e.g.
reduce inventory levels relative to sales), the business will generate more cash or it will
need to borrow less money to fund working capital. As a consequence, we could reduce
the cost of bank interest or we'll have additional free money available to support
additional sales growth or investment. Similarly, if we can negotiate improved terms with

59

suppliers e.g. get longer credit or an increased credit limit; we effectively create free
finance to help fund future sales.

If we.......
Collect receivables (debtors) faster

Then......
We release cash from
the cycle

Collect receivables (debtors) slower

Our receivables soak

up cash

Get better credit (in terms of duration

We increase our cash

or amount) from suppliers

resources

Shift inventory (stocks) faster

We free up cash

Move inventory (stocks) slower

We consume more
cash

It can be tempting to pay cash, if available, for fixed assets e.g. computers, plant, vehicles
etc. If we do pay cash, remember that this is now longer available for working capital.
Therefore, if cash is tight, we should consider other ways of financing capital investment
- loans, equity, leasing etc. Similarly, if we pay dividends or increase drawings, these are
cash outflows and, like water flowing downs a plug hole, they remove liquidity from the
business.

More businesses fail for lack of cash than for want

of profit.

60

Sources of Additional Working Capital:

Existing cash reserves

Profits (when we secure it as cash!)

Payables (credit from suppliers)

New equity or loans from shareholders

Bank overdrafts or lines of credit

Long-term loans

If we have insufficient working capital and we try to increase sales, we can easily overstretch the financial resources of the business. This is called overtrading. Early warning
signs include:

Pressure on existing cash

Exceptional cash generating activities e.g. offering high discounts for early cash
payment

Bank overdraft exceeds authorized limit

Seeking greater overdrafts or lines of credit

Part-paying suppliers or other creditors

Paying bills in cash to secure additional supplies

Management pre-occupation with surviving rather than managing Frequent shortterm emergency requests to the bank (to help pay wages, pending receipt of a
cheque).
Handling Receivables (Debtors)

Cash flow can be significantly enhanced if the amounts owing to a business are collected
faster. Every business needs to know.... who owes them money.... how much is owed....
how long it is owing.... for what it is owed.

61

Late payments erode profits and can lead to bad

debts.
If we don't manage debtors, they will begin to manage our business as we will
gradually lose control due to reduced cash flow and, of course, we could experience an
increased incidence of bad debt.
The following measures will help manage our debtors:
1. Have the right mental attitude to the control of credit and make sure that it gets
the priority it deserves.
2. Establish clear credit practices as a matter of company policy.
3. Make sure that these practices are clearly understood by staff, suppliers and
customers.
4. Be professional when accepting new accounts, and especially larger ones.
5. Check out each customer thoroughly before we offer credit. Use credit agencies,
bank references, industry sources etc.
6. Establish credit limits for each customer... and stick to them.
7. Continuously review these limits when we suspect tough times are coming or if
operating in a volatile sector.
8. Keep very close to our larger customers.
9. Invoice promptly and clearly.
10. Consider charging penalties on overdue accounts.
11. Consider accepting credit /debit cards as a payment option.
12. Monitor our debtor balances and ageing schedules, and don't let any debts get too
large or too old.
Recognize that the longer someone owes we, the greater the chance we will never get
paid. If the average age of our debtors is getting longer, or is already very long, we may
need to look for the following possible defects:

weak credit judgment

62

 poor collection procedures

lax enforcement of credit terms
slow issue of invoices or statements
errors in invoices or statements
Customer dissatisfaction.
Debtors due over 90 days (unless within agreed credit terms) should generally demand
immediate attention.

Profits only come from paid sales.

The act of collecting money is one which most people dislike for many reasons and
therefore put on the long finger because they convince themselves there is something
more urgent or important that demands their attention now. There is nothing more
important than getting paid for our product or service. A customer who does not pay
is not a customer.
Managing Payables (Creditors)
Creditors are a vital part of effective cash management and should be managed carefully
to enhance the cash position.
Purchasing initiates cash outflows and an over-zealous purchasing function can create
liquidity problems. Consider the following:

Who authorizes purchasing in our company - is it tightly managed or spread

among a number of (junior) people?

Are purchase quantities geared to demand forecasts?

Do we use order quantities which take account of stock-holding and purchasing

costs?

63

Do we know the cost to the company of carrying stock?

Do we have alternative sources of supply? If not, get quotes from major suppliers
and shop around for the best discounts, credit terms, and reduce dependence on a
single supplier.

How many of our suppliers have a returns policy?

Are we in a position to pass on cost increases quickly through price increases to

our customers?

If a supplier of goods or services lets we down can we charge back the cost of the
delay?

Can we arrange (with confidence!) to have delivery of supplies staggered or on a

just-in-time basis?

There is an old adage in business that if we can buy well then we can sell well.
Management of our creditors and suppliers is just as important as the management of our
debtors. It is important to look after our creditors - slow payment by we may create illfeeling and can signal that our company is inefficient (or in trouble!).
Remember, a good supplier is someone who will work with us to enhance the future
viability and profitability of our company.

64

65

ANALYSIS OF
FINANCIAL
STATEMENT OF
ACC LIMITED

66

COMMON SIZE STATEMENT ANALYSIS (VERTICAL

ANALYSIS):A financial statement that has variables expressed in percentages rather than in dollar
amounts. For example, items on an income statement are shown as a percentage of
revenue or sales, and balance sheet entries are displayed as a percentage of total assets.
Common-size statements are used primarily for comparative purposes so that firms of
various sizes can be equated. Also called one hundred percent statement.
Advantages:-

The statement reveals the sources of funds & the distribution or application of the
total funds in the asset of a business enterprise.

Comparison of the common size statement over a number of years will clearly
indicate the changing proportion of the various components of assets, liabilities,
cost, net sales & profits.

It will assist corporate evaluation & ranking.

Limitations:-

It doesnt show variations in the different account items from period to period.
Less useful due to lack of established standard proportion of an asset to the total
asset & so on.
Common size statement analysis of ACC cements Ltd. from 2005-2009

2005 (%)

2006(%)

2007(%)

2008(%)

2009(%)

SOURCES OF Rs.(Crore) Rs.(Crore) Rs.(Crore) Rs.(Crore) Rs.(Crore)

FUNDS:
Shareholders

46.96

71.76

83.84

85.77

86.78

Funds:Loan Funds:

44.36

20.91

9.47

8.39

8.18

67

Deferred

Tax

Liabilities (Net)
TOTAL
FUNDS
APP.

8.68

7.32

6.69

5.84

5.04

100

100

100

100

100

79.48
11.50
9.00

80.03
17.06
2.92

88.29
11.82
(0.11)

91.08
21.28
(12.37)

0.61

0.02

0.00

0.00

0.00

100

100

100

100

100

OF

FUNDS:--Fixed Assets: - 84.16

Investments:9.60
Net
Current 5.62
Assets(

Curr

Assests- current
liabilities

&

provision)
MISC EXP.
(to the extent
not written off
or adjusted)
TOTAL
ASSETS (Net)

Interpretation:(a) There is a significant increase in shareholders fund & decrease in loan

funds continuously over a period of time.
(b) There is also a significant increase in the amount invested by the company
for the purpose of future growth.
(c) There is a significant decrease in current asset over a period of time.
Trend Analysis (Horizontal):- Trend percentage analysis moves in one direction either
progression or regression ( upward or downward).This method involves the calculation of

68

percentage relationship that each statements bear to the same item in the base year
.Mostly the earliest period is taken as the base year.
ADVANTAGES:

It indicates the increase in an accounted item along with the magnitude of changes
in percentages which is more effective then absolute data.

It facilitates an efficient comparative study of the financial performance of a firm

over a period of time.

LIMITATIONS:

Any one trend by itself is not very analytical & informative.

During the inflationary periods the data becomes incomparable ,unless the
absolute rupee data is adjusted.

There is always the danger of selecting the base year which may not be
representative, normal & typical.

The calculated percentages having no logical relationship with one another.

Precautions to be taken:-

Consistency in the principles & practices followed by the organization throughout

the calculated period.

The base year should be normal.

Trend percentages should be calculated only for the items which are having
logical relationship with each other.

Figures of the current year should be adjusted according to the changes in price
levels.

69

2006*

2007

2008

2009

SOURCES OF FUNDS:

Rs.(Crore)

Rs.(Crore)

Rs.(Crore)

Rs.(Crore)

Shareholders Funds:-

100

132.06

156.79

191.42

Loan Funds

100

51.21

52.62

61.9

Deferred Tax Liabilities

100

103.4

104.7

108.9

TOTAL FUNDS

100

113.1

131.2

158.3

Fixed Assets

100

113.9

145.7

181.4

Investments

503.5

167.8

134.9

293.1

Curr Assets,Loans & Adv: ---

100

114.7

143.6

119.4

(Less):-Current Liabilities &Prov.

100

134.8

181.1

206.4

0.00

0.00

131.2

158.3

APP. OF FUNDS:-

MISC EXP.
(to the extent not written off or
adjusted)

100

0.00

TOTAL ASSETS (Net)

100

113.1

70

*Base year:-2006 Value (100)

WORKING CAPITAL CALCULATION:Statement showing change in working capital for ACC Ltd:( Rs.in Crore)

Particulars

Dec09

Dec08

Increase ( + )

Decrease (- )

Inventories

778.98

793.27

(14.29)

Sund. Debtors

203.70

310.17

(106.47)

Cash & Bank Bal

746.38

984.24

(237.86)

Loan & Advances

554.42

651.28

(96.86)

Other CA

10.99

20.67

(9.68)

Total ( A )

2294.47

2759.63

C.L.

2060.34

1801.79

258.55

Provisions

1091.88

963.93

127.95

Total ( B )

3152.22

2765.72

Current Assets

Current Liabilities

(851.66)
( A-B )

(857.75)

Changes in working

(6.09)

(465.16)

(465.16)

(465.16)

(465.16)

(851.66)

capital
Total

(857.75)

(857.75)

Similarly the calculation of WC for the year 2005 to 2009 as

given below:71

(Rs.in Crore)
(A)Current assets
(B)Current

2005
1,421
1,335

2006
1,921
1,672

2007
2,203
2,221

2008
2,760
2,766

2009
2,294
3,152

Liabilities
Working capital

86

249

(18)

(6)

(858)

Interpretation:-While looking into the changes, we will look into the various
components of working capital & analyze the changes in that.

INVENTORY ANALYSIS

72

By analyzing the 5 years data we can see that the value of inventories is increasing over a
no of year. It indicates that the company is growing rapidly in cement sector. A company
uses inventory when they have demand in market. From other point of view we can say
that the liquidity of firm is blocked in inventories but it is important to keep stocks due to
uncertainty of availability of raw material in time.
SUNDRY DEBTORS ANALYSIS

73

Debtors will arise only when credit sales are made. The above graph depicts that there is
continuous rise in the debtors of ACC Ltd in the successive years other than 2009.. It
represents an extension of credit to customers. The reason for increasing credit is
competition and company liberal credit policy.
Cash & Bank Bal, Loans & adv ANALYSIS:-

74

Significant increase in Cash & bank balance, which shows the financial strengths
of the company. Though there is a slight fall in the FY 2009 . Cash is basic input
or component of working capital. Cash is needed to keep the business running on
a continuous basis. So the organization should have sufficient cash to meet
various requirements.

After analyzing the table, we can say that the pattern of loans & advance is not
static in nature. It shows upwards & downwards movement as the requirements
influence it.

CURRENT LIABILITIES & PROVISIONS ANALYSIS:-

75

After analyzing the bar-chart, we can say that the amount of current liabilities is
increasing significantly over years .An increase current liabilities indicates that
company is using its credit facilities to the maximum extent for operating
purpose.

From the above table we can see that provision shows an increasing trend and the
huge amount is being kept in these provisions. This is kept to pay the taxes,
interest & other facilities or benefits to the employee. It is just kept for meeting
future short-term liabilities.

76

RATIO ANALYSIS

77

(A) OVERVIEW:Financial ratios are measures of the relative health, or sometimes the relative sickness of
a business. A physician, when evaluating a persons health, will measure the heart rate,
blood-pressure and temperature; whereas, a financial analyst will take readings on a
companys growth, cost control, turnover, profitability and risk. Like the physician, the
financial analyst will then compare these readings with generally accepted guidelines.
Ratio analysis is an effective tool to assist the analyst in answering some basic questions,
such as:1. How well is the company doing?
2. What are its strengths and weaknesses?
3. What are the relative risks to the company?
Although an analysis of financial ratios will help identify a companys strengths
and weaknesses, it has its limitations and will not necessarily provide the solutions or
cures for the problems it identifies.

B. APPLICATION OF RATIO ANALYSIS:-

Integral tool in trend analysis

Compares the companys own ratios to itself over time

Identifies the companys strengths and weaknesses
Assists in establishing appropriate capitalization rates (helps to identify risk
factors particular to the subject company)

78

WORKING CAPITAL RATIOS AND ITS INTERPRETATION :Dec05

Dec06

Dec07

Dec08

Dec09

Current Ratio

0.58

0.77

0.86

0.89

0.67

Quick Ratio

0.42

0.61

0.55

0.61

0.42

Solvency Ratio
Debt-equity ratio.

0.50

0.25

0.07

0.10

0.09

Interpretation: - As we know that ideal current ratio for any firm is 2:1.The
current ratio of company is less than the ideal ratio. This depicts that companys
liquidity position is not sound. Its current assets are less than its current liabilities.
Generally a QR of 1:1 is considered to represent satisfactory current financial
position. The trend of quick ratio is uneven & the ratio is around 0.5:1 over a
period of time. A quick ratio is an indication that the firm is liquid and has the less
confidence to meet its current liabilities in time. This shows company has
liquidity problem.
Debt-equity ratio shows relationship between borrowed funds and owners capital
is a popular measure of the long term financial solvency of the firm. For ACC it
was the highest around 0.5:1 in 2005.After that it shows fluctuation.
Activity/mgmt efficiency Ratio:79

Dec,05

Dec06

Dec07

Dec08

Dec09

Inventory Turnover 5.37

9.33

24.85

27.51

25.22

Ratio
Debtor

Turnover 16.34

27.75

27.40

24.12

31.22

Investment Turnover 12.29

22.40

24.85

27.51

25.22

(6.96)

(18.25)

(17.02)

(54.17)

Ratio

Ratio
Work cap turn.

(27.93)

It shows increasing trend which is favorable for the company. As it indicates how
rapidly the inventory is turning into receivable through sales. A high ratio is good
from the view point of liquidity. A low ratio would signify that inventory does not
sell fast.
A high ratio is indicative of shorter time lag between credit sales and cash
collection. The higher the value of debtors turnover the more efficient is the
management of debtors or more liquid the debtors are. A low ratio shows that
debts are not being collected rapidly. As the graph reveals that the debts are

80

collected in time & the process is improving consistently. This shows that
company is utilizing its debtors efficiently as compare to previous year.
This ratio indicates high net working capital requires for sales. This company
having negative working capital because, they have more current liabilities over
current assets. It shows that the short term loans are not sufficient and more
money are invested in the purchase of fixed assets. Thus this ratio is helpful to
forecast the working capital requirement on the basis of sale.

Profitability & Investment turnover Ratio:-

Profitability

Dec,05

Dec06

Dec07

Dec08

Dec09

Gross Profit Ratio

17.32

28.97

23.72

20.59

27.68

Net Profit Ratio

16.85

21.16

20.44

16.29

19.69

10.00

10.00

10.00

10.00

10.00

8.00

15.00

20.00

20.00

23.00

Ratio

Investment
Valuation Ratio
Face value
Dividend per Share

81

 As it shows the dividend per share ratio is increasing over years. It means that
the investors have faith in the company.

G/P margin ratio shows the profit relative to sales. A high ratio of gross profits
to sales is a sign of good management as it implies that the cost of production of
the firm is relatively low. For ACC it is uneven but it was good in FY06 &
FY09.

The net profit margin is indicative of management ability to operate the business
with sufficient success not only to recover from revenues, but also to leave a
reasonable margin to the owners. A high net profit margin would ensure
adequate return to the owners as well as enable a firm to face adverse economic
conditions. It is significant & satisfactory for the company.

82

SUGGESTION:-

83

SUGGESTION: It is suggested that the company has to increase its current assets to
meet its short-term obligations.
Company has to improve debtors collection period continuously
so that effective receivable management will possible.
Reserves should be utilized for the growth of the company.
While forecasting cash flow, the management should take into
account the impact of unforeseen events, market cycles and actions
by competitors. The effect of unforeseen demands of working
capital should be factored in.
Collaborating with the customers & suppliers instead of being
focused only on own operations will also yield good results. If
feasible, helping them to plan their inventory requirements
efficiently to match their production with their consumption will
help reduce inventory levels.

84

BIBLIOGRAPHY

85

BIBLIOGRAPHY
WEB SUPPORT:

www.google.com
investopedia.com
www.Moneycontrol.com
www.cmaindia.org
www.acclimited.com

REF . BOOKS
FINANCIAL MANAGEMENT BY PROF. KHAN AND JAIN
FINANCIAL MANAGEMENT TEXT BOOK (SCDL)

FINANCIAL MANAGEMENT BY PROF I.M PANDY

BUSINEES INDIA

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